Fog over U.S. economy unlikely to lift soon

Terrible weather masks whether growth is stable or deteriorating

WASHINGTON (MarketWatch) — Trying to figure out what the heck is going on in the economy right now is like driving in a fog. You can only see a few yards ahead before visibility ends.

The road being taken by the economy, of course, has not been concealed merely by a vapor mist. The nation has repeatedly been slammed over the past two months by major snow storms, cold fronts and even polar vortexes (whoever heard of that term before this year?)

Maybe the economy is doing all right, or perhaps it’s suffered another setback, but nobody really knows.

“The weather doesn’t just clog traffic, it clogs the economic data,” said Lawrence Creatura, portfolio manager at Federated Investors. “You just don’t know if this is indicative of what’s going on in the broader economy.”

Nonetheless, investors will sift for clues in a holiday-abbreviated week from a bevy of reports on house construction, home sales and manufacturing. Wall Street will also get a peek at what top Federal Reserve bankers said about the economy at their last big meeting in January.

Weather still the big story

Early reports for January suggest that poor weather disrupted the operations of manufacturers and the problems may have carried over in the February.

The Empire State index produced by the New York Federal Reserve is likely to fall slightly, according to economists polled by MarketWatch. The report comes out Tuesday morning.

The New York region, like much of the Northeast, has been swathed in snow and ice for much of the new year. And a similar manufacturing reported issued Thursday by the Philadelphia Fed might also be susceptible to weather-induced weakness.

On Wednesday, investors will zero in on the minutes of the Fed meeting in January when the bank voted to reduce stimulus for the economy. These reports rarely offer a great surprise but they do clue Wall Street into what central bankers are thinking. Fed officials have adopted a sunnier view of the economy lately despite the poor weather and a batch of soft indicators in January.

The same day, the government will unveil its newly revamped report on wholesale price inflation. The report will include services for the very first time, but it’s unlikely to show any change in the near absence of wholesale price pressures. Inflation has been unusually tame lately.

Construction on new homes in January, meanwhile, is likely to have declined. Higher mortgage rates have scared off some buyers and builders probably delayed projects because of frozen ground and bone-chilling conditions for their construction crews.

Sales of previously owned homes, issued Friday, are expected to take a dip in January for the very same reasons.

The other notable report of the week, jobless claims, is a bit of a wild card. Poor weather causes some people to put off applying for benefits right away and the President’s Day holiday might also throw the numbers out of whack.

Yet jobless claims, a gauge of layoffs, may be flashing a yellow sign. The steady decline since last year appears to have halted and it would be a worrisome sign if claims flatten out near their current level in the 330,000 range.

For now, investors appear to have taken the recent string of soft economic reports in stride, if last week’s stock market rally is an indication. Wall Street figures to wait until the fog over the data clears before altering its generally half-full instead of half-empty view of the economy.

“Investors should be very careful about giving these [upcoming] reports too much credence,” Creatura said.

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